Simon Bell Associate Partner St. James s Place Wealth Management Telephone: 07971 087 703 Email: simon.bell@sjpp.co.uk Website: www.sjpp.co.uk/simonbell RETIREMENT PLANNING NHS Professionals Introduction Like most defined benefit pension schemes, the NHS Pension arrangements are more complex and have specific issues applicable to its members. The NHS has separate schemes covering England and Wales, Scotland, Northern Ireland and the Isle of Man. If an individual changes employer and work in a different jurisdiction, they can, if they wish, transfer their pension rights to maintain a continuous pension record. However, as each of the different jurisdictions have separate registered pension schemes, a transfer may have some implications. These notes are based on the NHS Schemes covering England and Wales. There are currently two NHS Pension Schemes (NHSPS): The old scheme comprising the 1995 Section and the 2008 Section, and The new 2015 NHS Pension Scheme (the 2015 Scheme ). All employees who joined the NHS on or after 1 April 2015 automatically joined the 2015 Scheme. Additionally, members of both the 1995 and 2008 Sections may also move into the 2015 Scheme depending on their term to Normal Pension Age (NPA) as at 1 April 2012. Details of when an individual will move into the 2015 Scheme are outlined in the Transitional and Tapered Protection sections overleaf. The examples used in this factsheet will focus on the rules that apply to the 1995 Section of the Scheme although the principles apply to all sections. Key Features of the 2015 Scheme The 2015 Scheme is a career average revalued earnings (CARE) scheme rather than a final salary. It will, however, still be a defined benefit pension scheme. The main features of the 2015 Scheme include: Career Average Revalued Earnings (CARE), with benefits based on a proportion of pensionable earnings each year of an individual s membership. An accrual rate of 1/54th of each year s pensionable earnings with no limit on the number of years that can be taken into account, although active membership of all scheme is currently subject to an upper age limit of 75. Revaluation of active members benefits in line with a rate set by HM Treasury (currently CPI), plus 1.5%. A member may be able to exchange some of their pension for a tax free cash sum within certain limits. They will receive 12 of tax free cash for every 1 of pension given up. Revaluation of pensions for deferred members is in line with CPI. 1
An NPA at which benefits can be claimed without reduction for early payment, linked to the member s State Pension Age (SPA) or age 65 if that is later. Pensions in payment will increase in line with a rate set by HM Treasury (currently CPI). It is a qualifying work place pension and is used by the NHS to meet its employer duty requirements for auto-enrolment. Transitional and Tapered Protection Members of the 1995 and 2008 Sections who, as at 1 April 2012, were either already over their Normal Pension Age or 10 years or less from their Normal Pension Age and in active membership on both 1 April 2012 and 31 March 2015 are entitled to Full Protection. This means they will be allowed to continue accruing future benefits in their current scheme until they retire, i.e. the changes will have no impact on them. This means that anyone: With a NPA of 55 in the 1995 Section, who was born on or before 1 April 1967 will continue to accrue benefits in the 1995 Section until they retire. With a NPA of 60 in the 1995 Section, who was born on or before 1 April 1962 will continue to accrue benefits in the 1995 Section until they retire. In the 2008 Section who was born on or before 1 April 1957 will continue to accrue benefits in the 2008 Section until they retire. Members of both the 1995 and 2008 Sections who, as at 1 April 2012, were more than 10 years, but less than 13 years and 5 months from their NPA and in active membership on both 1 April 2012 and 31 March 2015 are eligible for Tapered Protection. Tapered Protection means the individual will join the 2015 Scheme from a date later than 1 April 2015, determined by their age in years and months as at 1 April 2012. Tapered Protection is based on how many months beyond 10 years the member was away from their normal NPA as at 1 April 2012. For each month beyond 10 years, the Tapered Protection end date of 31 March 2022 is reduced by two months. For example, a member who was 11 years, six months (ie 18 months beyond 10 years away from their NPA as at 1 April 2012), would have the Tapered Protection end date of 31 March 2022 reduced by 36 months (18 months x 2). Tapered Protection for this member would end on 31 March 2019 and they would move to the 2015 Scheme on 1 April 2019. A calculator that shows the date the member will join the new 2015 Scheme is available on the NHS Pension website http://www.nhsbsa.nhs.uk/pensions.aspx Maximum contributions The maximum tax-relievable contribution an individual can personally make to all registered pension schemes is 3,600 or (if more) 100% of their relevant UK earnings, subject to a maximum of the Annual Allowance in the Pension Input Period (essentially the Scheme year running to 31 March for contributions to the NHS Schemes prior to 31 March 2014). The Annual Allowance takes into account both deemed employer and employee contributions and is currently 40,000. 2
From 6 April 2016, individuals with income from all sources ( threshold income ) that exceeds 110,000 are affected by the Tapered Annual Allowance and their tax-relievable pension contributions will be restricted. More information on the Tapered Annual Allowance can be found in the Tapered Annual Allowance factsheet (SJP4516). The deemed contribution is not the amount actually paid. Instead, the way in which the deemed contribution to the NHS Pension Scheme and the Additional Pension arrangement is calculated is explained as follows: Step 1 Calculate the pension benefit (and the additional tax free cash sum for members of the 1995 Section) and, if applicable, the amount of Additional Pension at the start of the year. Step 2 Revalue the pension benefits at the start of year, using the Consumer Price Index (CPI) figure for the year in question. Step 3 Calculate the pension benefit (and the additional tax free cash sum for members of the 1995 Section) and, if applicable, the amount of Additional Pension at the end of the year. Step 4 Check whether the value of pension benefits at end of the year exceeds the revalued benefits at start of year and, if so Step 5 Multiply the increase in pension value by 16, (and for members of the 1995 Section add on the increase in tax free cash) to calculate the deemed contribution. Example 1: Consultant A with 35 years membership by the end of the relevant year, going from gold to platinum Clinical Excellence Award. Pensionable pay increases from 158,750 to 179,768 at the start of year and CPI assumed to be 2.5%. Step 1 Calculate value of pension benefits at the start of the year Pension = 67,468.75 per annum (34/80 x 158,750) Lump sum = 202,406.25 (3 x 67,468.75) Step 2 Inflation-proof by CPI (2.5%) Pension = 69,155.47 pa Lump sum = 207,466.41 Step 3 Calculate value of pension benefits at the end of the year: Pension = 78,648.50 per annum (35/80 x 179,768) Lump sum = 235,945.50 (3 x 78,648.50) Step 4 Determine increase in pension benefits over the year and multiply pension by 16: Pension = 151,888.50 ( 78,648.50-69,155.47 = 9,493.03 x 16) Lump sum = 28,479.09 ( 235,945.50-207,466.41) Total = 180,367.59 Step 5 Test against the Tapered Annual Allowance (10,000) Annual allowance is exceeded by 170,367.59 3
For GPs (General Practitioners) and GDPs (General Dental Practitioners), the total accrued lifetime earnings also have to be taken into account. Example 2: General practitioner B, with pensionable earnings of 120,000, no other income, 3.0m dynamised past earnings and CPI assumed to be 2.5%. Step 1 Calculate value of pension benefits at the start of the year and inflation-proof: Pension = 42,000 per annum ( 3.0m x 1.4%) Lump sum = 126,000 ( 3.0m x 4.2%) Step 2 Inflation-proof by CPI (2.5% for 2014/15) Pension = 43,050 pa Lump sum = 129,150 Step 3 Calculate value of pension benefits at the end of the year: Pension = 45,360 per annum ( 3.0m x Dynamisation Factor (2.5% [CPI] + 1.5%) = 3,120,000 + 120,000 = 3,240,000 x 1.4%) Lump sum = 136,080 ( 3,240,000 x 4.2%) Step 4 Determine increase in pension benefits over the year and multiply pension by 16: Pension = 36,960 ( 45,360-43,050 = 2,310 x 16) Lump sum = 6,930 ( 136,080-129,150) Total = 43,890 Step 5 Test against 40,000 Annual Allowance Annual allowance is exceeded by 3,890 Please note, Examples 1 & 2 are purely to show the processes involved in the calculations, the figures used may not reflect actual remunerations. If the NHS professional also contributes to any money purchase schemes (eg the NHS offers two money purchase AVCs, these being through Standard Life or Prudential), the amount contributed will need to be added to the above figures. If contributions exceed the Annual Allowance, the NHS professional will need to check whether there is any unused Annual Allowance from the previous three Pension Input Periods and, if so, these can be carried forward to reduce the amount of the excess found at step 5 in the above examples. The personal contributions NHS professionals will make to the NHS Pension Scheme are tiered, based on full year whole-time equivalent (WTE) pensionable pay for non-practitioners, or total certified NHS pensionable pay for practitioners. There is no upper earnings limit. This amount must be taken into account when considering any available scope for additional personal contributions. The tiers can be found in the comparative table on page 13. As you can see, the calculations are complex and NHS professionals should contact the NHS Pensions Agency for confirmation of the deemed contributions to the NHS Pension Schemes, including any additional pension, for the last three years. If there is still an excess, the individual will be liable to an Annual Allowance charge. To determine the tax charge, the excess over the Annual Allowance is added to their total income for the year to determine the appropriate rate of tax. This is explained later in this factsheet. 4
Topping Up Scheme Benefits There are a number of options open to individuals in the NHSPS who wish to increase the value of their benefits under the 2015 Scheme: Additional Pension Early Retirement Reduction Buy Out (ERRBO) Money Purchase and Stakeholder Pensions Additional Pension Individuals can make increased contributions to secure an increase in their pension entitlement at retirement. Increased pension is secured in units of 250 p.a. up to a maximum of 5,000 p.a. This secures an increase to the member s pension and also to any dependant s pension that might become payable. Early Retirement Reduction Buy Out (ERRBO) NPA in the 2015 Scheme is linked to an individual s SPA. However, an option exists for a member to enter into an ERRBO agreement to effectively buy-out the actuarial reduction for taking benefits from age 65. This means that an individual can enter into an ERRBO agreement with their employer, who can if they wish meet some of the cost to allow the individual to take benefits 1, 2 or 3 years before NPA, but no earlier than age 65. An exception to this is where NPA is not a whole number, for example if the NPA is 65 years and a number of months, then an ERRBO agreement can be taken out to include the number of months. The amount of additional contributions payable depends on the individual s age and the number of years reduction to be bought out. For an application to apply from the date of joining the 2015 Scheme it must be received within three months of the joining date. Applications received after this time will apply from the beginning of the next Scheme year. An ERRBO cannot be taken out retrospectively for previous Scheme years. Money Purchase and Stakeholder Pension The NHS offers money purchase AVCs and Stakeholder Pensions with Prudential and Standard Life. When looking at increasing the value of pension accrual, it is important to consider the impact of both the Annual Allowance and Lifetime Allowance. However, an ERRBO agreement will not have any impact on the valuation for Annual Allowance purposes as it does not increase the benefits accrued in the year. Paying the Annual Allowance Charge The Annual Allowance tax charge can be paid directly through Self-Assessment or through the Scheme Pays option. If the Annual Allowance charge is 2,000 or less, this liability will have to be settled directly by the NHS professional, via the normal Self-Assessment process or by HMRC s existing time to pay process. If, however, the total Annual Allowance charge is over 2,000, and the following criteria are met, an individual can elect to meet the full charge via the Scheme Pays option by a permanent reduction in pension and lump sum benefits when the tax charge arises, or they can choose to pay part of the charge and have the remainder deducted from benefit:- The overall Annual Allowance charge from all pension arrangements must exceed 2,000 in the year in question. 5
Deemed contributions to the NHS Pensions Scheme must exceed the Annual Allowance ( 40,000 for 2017/18) in the year in question. NB Scheme Pays is not available if contributions exceed the tapered Annual Allowance but are less than 40,000. The member cannot have taken all benefits from the NHS Pensions Scheme. If an individual elects for the NHS to pay some or all of their annual allowance tax charge, the scheme will pay the tax charge due and will apply interest to the amount paid at CPI+ 2.8% (since 16 March 2016) each year until retirement. At retirement, a reduction will be applied to the individual s benefits before they are paid. If the individual is a member of the 1995 Section, then both the pension and lump sum will be reduced proportionately; if they are members of the 2008 Section or 2015 Scheme, then only the pension will be reduced. The amount of the reduction will be calculated by the Scheme Actuary, taking into account the amount owed (as a result of the NHS paying the tax and interest) and age related factors. The position for money purchase schemes is much easier to determine as they will be able to satisfy the Annual Allowance charge by a cash disinvestment that exactly matches the tax liability. Maximum benefits Pension legislation does not now impose an overall limit on the amount someone can build up via a pension scheme but whenever benefits are taken from a pension scheme, they are tested against the Lifetime Allowance that applies at the time. If the deemed value of the benefits exceeds the Lifetime Allowance, the excess will be subject to additional tax (the Lifetime Allowance charge ). The Lifetime Allowance is 1 million in 2017/18. To enable a consistent valuation to be achieved, the benefits from the NHS Pension Scheme are converted into an equivalent fund value by multiplying the pension by 20 and then adding the value of the tax free cash. On this basis, a NHS professional with 40 years service would require pensionable pay of more than 86,956.52 to breach the Lifetime Allowance in 2017/18. (Pensionable pay of 86,956.52 gives a pension of 43,478.26, plus a tax free cash sum of 130,434.78; 43,478.26 x 20 = 869,565.20 plus 130,434.78 = 999,999.98). For a GP or GDP, this means that total uprated pensionable pay cannot exceed 3,105,590 ( 3,105,590 x 1.4% = 43,478.26; 43,478.26 x 20 = 869,565.20 plus 130,434.78 = 999,999.98) in 2017/18. Any fund value built up in a personal pension will be added to the amount payable from the NHS Pension Scheme. NHS professionals who have been building up their pension through both the NHS Pension Scheme and a Personal Pension/Retirement Annuity, will find that they can reach their Lifetime Allowance with a much lower pension from the NHS. NHS Pensions pay the LTA charge directly to HMRC and recover the cost by permanently reducing the NHS pension benefits. The calculation of the recovery of the LTA charge is based on an age related factor provided by the Scheme s Actuary. The NHS will normally only allow any excess over the Lifetime Allowance to be taken as income, in which case the excess is subject to a 25% Lifetime Allowance Charge and the reduced income will be subject to Income Tax at the marginal rate. 6
Example 3: Consultant C retires in 2016/17 aged 60 after 40 years membership in the 1995 Scheme with pensionable pay of 135,000 a year at retirement. Pension benefits valued for Lifetime Allowance purposes: Pension: 67,500 x 20 = 1,350,000 Tax free cash sum: = 202,500 Total: = 1,552,500 Lifetime Allowance (LTA): = ( 1,000,000) Excess over the LTA: = 552,500 LTA charge: 25% x 552,500 = 138,125 To pay the Lifetime Allowance charge, the NHS Pension Scheme will reduce the pension by 6,705.09 ( 138,125/20.60), resulting in a reduced pension of 60,794.91 a year. The lump sum of 202,500 will remain unchanged. The spouse s death after retirement pension will reduce to 50% of the member s remaining pension. If, however, the cash sum entitlement payable from the 1995 Section exceeds 25% of the available Lifetime Allowance, the NHS will allow any excess cash sum from their scheme to be taken as a taxed lump sum, in which case it will be subject to a 55% Lifetime Allowance charge. Example 4: Dr D retires in 2017/18. The benefits payable from the NHS Scheme are a pension of 30,000 a year and a cash sum of 90,000. These benefits equate to a capital value of 690,000 or 69% of the LTA. He has previously crystallised 90% of the LTA. He has no form of Protection from the Lifetime Allowance. LTA remaining: ( 1,000,000 90% already taken) = 100,000 Maximum tax free lump sum available: 100,000 x 25% = 25,000 As the Scheme lump sum exceeds this amount by 65,000 ( 90,000-25,000), then a LTA Charge of 55% of the excess lump sum arises: LTA Charge: 65,000 x 55% = 35,750 Lump sum payable: 90,000-35,750 = 54,250 The capital value of the pension is then assessed against the remaining LTA, taking account of the amount taken as tax free cash and any excess is subject to a LTA charge at 25% in accordance with the previous example. Since April 2008 the rules of the NHS Pension Scheme have allowed members to increase their tax free cash to the maximum 25% permitted by HMRC. Where a NHS professional has benefits which are slightly above the Lifetime Allowance, taking up to 25% as a tax free cash sum can reduce the deemed value of the benefits for purposes of the Lifetime Allowance test. 7
Example 5: Consultant E is entitled to a pension of 45,000 and tax free cash of 135,000 (giving a deemed value of 1,035,000). He instead takes his maximum tax free cash sum: Lifetime Allowance (LTA): (assuming no transitional protection) = 1,000,000 Maximum tax free cash sum: = 241,071.43 * Reduced Pension: = 36,160.71 * Pension benefits valued for Lifetime Allowance purposes: Pension: 36,160.71 x 20 = 723,214.20 Tax free cash sum: = 241,071.43 Total: = 964,285.63 * Maximum tax free cash and reduced pension calculated using NHS Pension Commutation Calculator which can be found on the NHS Pensions Agency website at: http://www.nhspa.gov.uk/pdweb/pensioncalculators/pensioncommutation/index.htm A NHS professional may also be able to reduce the effects of the Lifetime Allowance by giving up (allocating) part of their pension to increase the amount paid to a dependant after their death. Up to one third of their pension can be allocated to a dependant subject to the following provisos: An exact number of pounds must be given up, An additional pension of at least 260 a year must be provided for the beneficiary, The total value of the beneficiary s pension benefits must exceed 1% of the Standard Lifetime Allowance, The member must be left with more pension than their beneficiary. The amount of pension the beneficiary will receive for each 1 allocated will depend on: The member s age The beneficiary s age Whether the beneficiary is male or female. The application for allocation cannot be made before the member wants to retire and is made using form AW8/11A, which can be found at the back of Booklet R ( Notes for pensioners and their dependants ). It should be sent to NHS Pensions with the application form AW8P. On receipt, the NHS Pensions Agency will send the member a quote. Pension Rights where the member has received Enhanced or Primary Protection Individuals could protect their pension funds from the Lifetime Allowance charge by registering for Enhanced Protection and/or Primary Protection before 6 April 2009. Primary Protection was available where the total benefits at A Day (6 April 2006) exceeded 1.5 million (the Standard Lifetime Allowance (SLA) at that time). The individual s additional benefits (or personal Lifetime Allowance) are protected, although a Lifetime Allowance charge will be applied to any excess over the individual s personal Lifetime Allowance. Enhanced Protection could have been applied for irrespective of whether benefits exceeded the SLA at A Day. Enhanced Protection will be lost if total benefits under the NHS Pension Scheme, including added years, increase at a rate that means Relevant Benefit Accrual (RBA) has occurred, or if contributions are made to associated a Money Purchase scheme (eg AVCs or to FSAVCs). RBA occurs if benefits increase by more than the greater of 5% or the growth in the retail prices index annually. 8
The following examples show how RBA is applied: Example 6: At 5 April 2006 a member had pensionable pay of 181,000.00 and 30 years scheme membership, providing a pension of 67,875.00, a lump sum of 203,625.00 and a capital value of 1,561,125.00. This was in excess of the SLA. The member applied for and received Primary and Enhanced Protection. The member retired 10 years later on 5 April 2016. Scheme membership was now 40 years and pensionable pay had increased by about 2% each year to 220,637.99, giving the member retirement benefits of: a pension of 110,319.00 and a lump sum of 330,956.99, with a capital value of 2,537,336.86. To test if RBA has occurred, the capital value at retirement must be lower than at least one of the following two amounts: 1. The capital value at 5 April 2006 increased by the greater of 5% for each year, or the percentage change in RPI since A Day, to retirement. At 2016, assuming an increase of 5% a year, the capital value could have increased to 2,542,908.12. 2. The value of the annual pension based on membership at 5 April 2006 but using the pensionable pay at retirement plus the revised lump sum. This would be: ( 220,637.99 x 30/80) = ( 82,739.25 x 20) + ( 82,739.25 x 3) = 1,903,002.66. As the 2016 retirement capital value of 2,537,336.86 is lower than the value at test 1 above, Enhanced Protection is retained and no Lifetime Allowance charges are payable. Example 7: At 5 April 2006 a member had pensionable pay of 181,000.00 and 30 years scheme membership, providing a pension of 67,875.00, a lump sum of 203,625.00 and a capital value of 1,561,125.00. This is in excess of the LTA. The member applied for and received Primary and Enhanced Protection. The member retires 10 years later on 5 April 2016. Scheme membership is now 40 years and pensionable pay has increased by about 4% each year to 267,924.22, giving the member retirement benefits of: a pension of 133,962.11 and a lump sum of 401,886.32, with a capital value of 3,081,128.48. To test if RBA has occurred then the capital value at retirement must be lower than at least one of the following two amounts: 1. The capital value at 5 April 2006 increased by the greater of 5% for each year, or the percentage change in RPI since A-day, to retirement. At 2016, assuming an increase of 5% each year, the capital value would be increased to 2,542,908.12. 2. The value of the annual pension based on membership at 5 April 2006 but using the pensionable pay at retirement plus the revised lump sum. This would be: ( 267,924.22 x 30/80) = ( 100,471.58 x 20) + ( 100,471.58 x 3) = 2,310,846.36. As the 2016 retirement capital value of 3,081,128.48 exceeds the values in both tests 1 and 2 above, Enhanced Protection is lost. As the member still has Primary Protection, the benefits up to a capital value of 1,872,000 ( 1,800,000 plus the Primary Protection factor) will remain protected. If Enhanced Protection is lost, individuals have 90 days from the date of the relevant event occurring to notify HMRC. If HMRC is not informed, the individual may be liable to a penalty of up to 3,000. 9
Pension rights where the member has received Individual and Fixed Protection The Lifetime Allowance reduced from 1.8 million to 1.5 million on 6 April 2012 and then from 1.5 million to 1.25 million on 6 April 2014 and again down to 1 million on 6 April 2016. It was possible for NHS professionals to apply for Fixed Protection (Fixed Protection 2012), meaning that their benefits will be tested against the previous Lifetime Allowance of 1.8 million, or Fixed Protection 2014 to retain a Lifetime Allowance of 1.5 million or Fixed Protection 2016 to retain a Lifetime Allowance of 1.25 million rather than the standard Lifetime Allowance. One of the requirements for retaining Fixed Protection is that no further contributions are made to money purchase schemes and that benefits in defined benefit schemes do not increase by more than the relevant percentage. The relevant percentage is the increase in CPI to September in the previous tax year and each year is looked at in isolation. As the Dynamisation Factor for practitioner earnings is CPI plus 1.5%, benefits for GPs and GDPs will automatically increase by more than the relevant percentage. The position for employees who were granted Fixed Protection or Fixed Protection 2014 will depend on the amount of service already accrued (eg employees with 20 years service will receive a 5% increase in pension by virtue of an additional year s service and the position will be worse for individuals with less service) and the extent of any future pay rises/merit awards. As the relevant % of CPI in September 2015 was -0.1%, if an NHS professional remained an active member of the NHSPS beyond 5 April 2016 they are not be eligible for Fixed Protection 2016. Essentially this means that the only way that a NHS professional can be sure of retaining Fixed Protection is to have opted-out of the Scheme. If an NHS professional had accrued benefits with a deemed value of more than 1.25 million on 6 April 2014 or more than 1 million on 6 April 2016 it is also possible to apply for Individual Protection. With individual Protection an individual can secure a personalised (individual) Lifetime Allowance equal to the value of the pension benefits they had accrued on 6 April 2014 capped at a maximum of 1.5 million for Individual Protection 2014 and on 6 April 2016 capped at a maximum of 1.25 million for Individual Protection 2016. Under this protection, members can continue to be an active member of the NHS pension scheme, although continued accrual would be liable to a Lifetime Allowance excess tax charge when taken. Although individuals who had previously been granted Enhanced or Primary Protection were not able to apply for Fixed Protection, the nature of these forms of protection generally mean that a greater level of benefit is protected than would be under Fixed or Individual Protection. 10
GDPs employed by Dental Bodies Corporate Since 1 August 2006, dentists have been able to form Dental Bodies Corporate (DBCs). A DBC is a corporate body under which the majority of the directors will need to be registered as dentists (or dental care practitioners) with the General Dental Council. This change allowed dentists to change their remuneration structure so that they become employees of the DBC, taking a comparatively low salary with the majority of their remuneration as dividends. The extent to which their income is pensioned via the NHS Pension Schemes will depend on whether the dentist is viewed by the NHS as being: A Provider (ie a Contractor who is a shareholder, partner, or sole trader) or A Performer (ie an Associate working for a Provider). A shareholder of a DBC Provider must pension all the General Dental Service (GDS) or Personal Dental Service (PDS) income that they take (ie draw down) from the business in the form of both salary and dividends. However, if any part of the dividend is in respect of private work, the private element must be stripped out, leaving only pensionable NHS dividend income. It is only possible to pension income that is taken during a particular year. Any GDS/PDS income that is not taken as salary or dividend but is left in the business cannot be pensioned now or in future years. If a Performer works for a Provider as an individual, then their GDS/PDS income is pensionable. If, however, a Performer creates a limited company and works for the Provider through that limited company, since 7 November 2011 they cannot pension that income via the NHS Pension Schemes. If a Performer performs as a limited company for one Provider and as an individual in another, they can still be a member of the NHS Pension Schemes in their individual role. Special Class membership The Normal Pension Age (NPA) of the 1995 Section was age 60. However, there are some exceptions to this where individuals known as special class members are able to retire at age 55. Special class members are individuals who were members of the 1995 Section before 6 March 1995, and were: Nurses Physiotherapists Midwives Health Visitors Student nurses and occupational health nurses are included in the above but nursery nurses, health care assistants and physiotherapy helpers are not included. Mental Health Officers (MHOs) also have a NPA of 55. This was awarded up to 31 March 1995 to members whose primary role is in the care and treatment of mentally ill patients including working in the community. Special class membership was abolished for all new entrants to the NHS Pension scheme after 6 March 1995, and for those previously holding the status, who have a break in pensionable employment of any one period of five years or more 11
The table below provides an overview of the differences that exist between the 1995 and 2008 sections of the NHS Pension Scheme and the 2015 Pension Scheme. It does not cover all benefit changes. Normal Pension Age Minimum Pension Age Early Retirement Factors Late Retirement Factors 1995 Section 2008 Section Post 2015 Section 60 65 Equal to an individual s State Pension Age or 65 if later 50 (so long as active member 55 55 between March 2000 and 5 April 2006) Early Retirement Factors apply on retirement prior to age 60. % by which benefits will be reduced on voluntary early retirement: Age Pension Lump sum 59 5% 3% 58 10% 7% 57 14% 9% 56 18% 12% 55 22% 15% 54 24% 18% 53 29% 20% 52 32% 23% 51 34% 25% 50 37% 27% No increases where pension deferred beyond 60. Early Retirement Factors apply on retirement prior to age 65. % by which benefits will be reduced on voluntary early retirement: Age Pension 64 6% 63 11% 62 15% 61 19% 60 24% 59 27% 58 31% 57 34% 56 37% 55 40% Immediate increase if deferred beyond age 65. Early Retirement Factors apply on retirement prior to State Pension Age. Early retirement factors: Time to NPA Factor years 1 0.946 2 0.896 3 0.849 4 0.807 5 0.767 6 0.730 7 0.669 8 0.633 9 0.633 10 0.605 Early Retirement reduction Buy Out (ERRBO). No tax free cash will be payable if benefits are deferred beyond age 75. Option to pay additional contributions to reduce/ remove any early retirement factors between SPA and age 65, estimated cost to be 1.2% - 1.5% of pensionable pay for each year. Late retirement factors (details yet to be confirmed, but on actuarially neutral basis). 12
1995 Section 2008 Section Post 2015 Section Member contribution rate Earnings Accrual rate Accrual Rate - Tax Free Cash Sum Final Salary employees/ consultants Tiered Contribution Rates 2015/2016 through to 2018/2019 for Scheme Members Tier Pensionable Pay Contribution (WTE) Bands Rate 1 Up to 15,431.99 5.0% 2 15,432.00 to 21,477.99 5.6% 3 21,478.00 to 26,823.99 7.1% 4 26,824.00 to 47,845.99 9.3% 5 47,846.00 to 70,630.99 12.5% 6 70,631.00 to 111,376.99 13.5% 7 111,377.00 and over 14.5% For GPs and GDPs the tiers will be based on certified pensionable pay. For non-practitioners the tiers will be based on whole time equivalent pensionable pay in the tax year. Pay thresholds (eg 21,478) will be adjusted in line with Agenda for Change pay awards. No earnings limit for service after 1 April 2008. NHS staff: 1/80 of Final Salary (see below) for each year of service Practitioners: 1.4% of uprated earnings per year Maximum pensionable service, 45 years. ADDITIONAL fixed tax free cash sum of 3/80ths final salary (4.2% of CARE for Practitioners). Tax free cash can be increased, by commutation, to 25% of value of pension. Commutation rate = 12:1. This means that maximum tax free cash will be approx 5.36 x full pension. Maximum additional amount = approx 2.36 x full pension. Best of last three years pensionable pay. NHS staff: 1/60 of Final Salary (see below) for each year of service. Practitioners: 1.87% of uprated earnings per year Maximum pensionable service, 45 years. By commutation, to 25% of value of pension. Commutation rate = 12:1. This means that maximum tax free cash will be approx 4.28 x full pension. Average of best three consecutive years pensionable pay (revalued in line with inflation) in last 10 years. No limit. Accrual rate of 1/54 (approx. 1.85%) of uprated earnings each year. Will apply to all members. No limit on pensionable service. By commutation, to 25% of value of pension. Commutation rate 12:1. This means that maximum tax free cash will be approx 4.28 x full pension. Career Average Earnings revalued by CPI + 1.5%. 13
Practitioner Earnings Dynamisation Factor AVC s Contribution limits Death in Service cash sum Death in Service survivor s pension 1995 Section 2008 Section Post 2015 Section Existing added years contracts that started (or were applied for) before 1 April 2008 can continue. Maximum additional annual pension of 5,000pa (in today s terms) for new additional pension contracts. Two money purchase AVCs (Standard Life and Prudential). Standard Life and Prudential Stakeholder Pension Plan for the NHS. All qualifying partners eligible for pension of 50% of member s notional tier 2 ill health retirement pension. Rights backdated to start of service for female spouses and to service since April 1988 for male spouses and registered civil partners. Short term pension payable at rate of member s pensionable pay for the first 6 months. Qualifying partners retain survivor pension on re-marriage or co-habitation. Changes in CPI + 1.5%. Maximum additional annual pension of 5,000pa (in today s terms) for new additional pension contracts. Two money purchase AVCs (Standard Life and Prudential). Standard Life Stakeholder Pension Plan for the NHS. 100% of pensionable pay. Twice pensionable pay. 37.5% of member s notional tier 2 ill health retirement pension Short term pension payable at rate of member s pensionable pay for the first 6 months All qualifying partners eligible for pension. Qualifying partners retain survivor s pension on re-marriage or co-habitation. Existing Added Years and Additional Pension arrangements continue. Two money purchase AVCs (Standard Life and Prudential). Standard Life Stakeholder Pension Plan for the NHS. 33.75% of the notional tier 2 ill health pension is under NPA at date of death or 33.75% of the notional age pension if over NPA at date of death. Qualifying partners retain survivor pension on re-marriage or co-habitation. Qualifying partner defined as legal spouse, registered civil partner, or nominated partner with whom member has had an exclusive and long-term committed relationship in which they have been financially dependent or inter dependent for two years. 14
Death in Service Children s Pension 25% of member s notional tier 2 ill health retirement pension for 1 child. 50% shared equally if 2 or more. 18.75% of member s notional tier 2 ill health retirement pension for 1 child. 37.5% shared equally if 2 or more. Payable to dependent children up to age 23. Payable indefinitely for children unable to earn a living due to physical or mental impairment where condition existed at the member s date of death. 16.875% of the notional tier 2 ill health pension 33.75% shared equally if two or more children. The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances. The issues facing NHS Professionals are uniquely complex and require thorough individual analysis. As a highly experienced specialist adviser with an in-depth knowledge of NHS Pensions and benefits, I am able to incorporate this expertise into fully explaining the implications and available options open to you in order to maximise your retirement planning. To discuss your own personal circumstances, to see how the issues raised in this factsheet affect you and what solutions might be available, please contact me directly. Telephone: 07971 087 703 Email: simon.bell@sjpp.co.uk Website: www.sjpp.co.uk/simonbell The St. James s Place Partnership and the titles Partner and Partner Practice are marketing terms used to describe St. James s Place representatives. Members of the St. James s Place Partnership in the UK represent St. James s Place Wealth Management plc, which is authorised and regulated by the Financial Conduct Authority. St. James s Place UK plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. St. James s Place UK plc Registered Office: St. James s Place House, 115 Tetbury Road, Cirencester, Gloucestershire, GL7 1FP, United Kingdom. Registered in England Number 2628062. Simon Bell SJP2050 V15 (05/17) IO